Semiconductor and graphic card producer Nvidia have recently joined the trillion dollar market capitalization club. It didn’t take long before they dipped back under the $1 trillion mark, but it could be an indicator that they’re going to be a permanent member in the near future.
The price spike came from strong Q1 financial results. Despite the stock levelling off below the milestone, it is thought that Nvidia will be one of the companies that help carry US stocks in the latter half of the year.
On Plus500 USA, investors in seemingly diversified index futures might be influenced by the fast-changing AI landscape regarding its potential applications. The implication is that, if AI succeeds, it’s not just Nvidia that benefits but many other listed companies who will see productivity benefits.
AI is already a disruption
Nvidia has seen a boost in financials and sentiment due to supply products that are used when training AI models. ChatGPT, for example, has been the fastest tech platform to reach 100 million users. The power behind ChatGPT uses Nvidia’s computing powers to train their powerful models.
The news in the past 6 months has been dominated by the rising opportunities (and threats) that AI possesses, with a wide-array of businesses jumping on the hype to bring out their new AI products. Just a few seconds with ChatGPT and you can solve your coding problems, write a newsletter, and even receive unlicensed CBT therapy.
Rajiv Jain, the founder of GQG Partners, claimed that AI is expected to disrupt business models across many different industries. “In Nvidia’s context, it [AI] is going to create some winners and losers . . . more losers than winners”.
Rising tensions with China
It is surprising, then, that much of this up tick has come shortly after Nvidia’s CEO, Jensen Huang, expressed concerns about the potentially negatively impact of rising US-China tensions. In particular, the war over semiconductors, which has led to the US banning exports from Nvidia to China.
The goal here is for the US to slow down China’s AI development, particularly due to its militaristic implementations. Huang warned that the US’ policy may inadvertently empower Chinese firms to become more independent in their process of developing powerful chips. China made a retaliatory move against the US chip producer Micron.
For Nvidia, China is a vast market. It is a tech-minded country with a population on par with India – but with higher living standards, meaning it’s a big buyer of Nvidia’s graphic cards for video game usage.
Huang also argued that the restrictions may undermine the $52 billion initiative known as the Chip Act. This is a funding package that looks at boosting the US semiconductor production, which, is now limited in who they can sell to. This makes it more difficult to compete against overseas competitors that are neither American or Chinese, but who instead are open to sell to China.
Buffet is staying away from Nvidia
Despite Nvidia leading the way in both AI and computing graphics power, the chipmaker hasn’t seemed to impress Warren Buffet all that much. You may be inclined to think that this is because of Buffet’s aversion to tech stocks – he claims to only invest in what he understands. But, this isn’t the case, as Apple has been Berkshire Hathaway’s largest holding for some time now.
And, it’s not AI that he is afraid of either. Whilst he has expressed concerns in his recent annual shareholder letter, he remains to invest in other AI leaders such as Amazon, MasterCard, and many others.
Instead, Buffet is put off by the price of Nvidia. Buying stocks at a reasonable price remains Buffet’s core principle, as he will never buy at an inflated price with the belief that it will continue to over inflate.
On many metrics, Nvidia is currently highly priced, even despite the promising outlook. We have seen with crypto how quickly things can change for Nvidia’s applications, and there have been many others example of tech bubbles. Even when considering that AI has a more promising future than crypto, there are still technical concerns.
Just like how vast computing power become redundant to mine crypto due to a change of technological structure, who is to say the same fate couldn’t happen with training AI models? Whilst an expert in AI with technical expertise may deem this unlikely, it’s a situation that someone like Buffet cannot be sure of.
Furthermore, many of the other AI leaders, like Amazon, are totally diversified into other areas like e-commerce unlike Nvidia.
Nvidia’s recent brush with the trillion-dollar market cap is a testament to the company’s prominence in AI and graphics computing. Their journey to this point, however, isn’t without challenges – rising tensions with China and a high price being the key ones. Despite this, with the growing reliance on AI and Nvidia’s pivotal role in the industry, they stand as a compelling figurehead for the future.